Total Cost of Ownership

Does total cost of ownership include end-of-life and disposal costs?

Summary

8 minutes reading time

Michel Prins

Accountmanager Safety & Security

Michel Prins is Account Manager at Faes and a specialist in Safety & Security. Thanks to his background at the Ministry of Defense and years of experience in the sector, he advises organizations on reliable packaging solutions for critical applications. He combines practical knowledge with technical expertise to package sensitive equipment safely and efficiently.

What is total cost of ownership and what does it include?

Total cost of ownership encompasses all costs associated with a product throughout its entire lifecycle, from purchase to disposal. For industrial packaging, this means the purchase costs, maintenance costs, operational costs and, ideally, the end-of-life costs as well. A comprehensive TCO analysis for packaging includes various cost components. The purchase costs are, of course, the most obvious part. But there are also operational costs, such as storage, handling and transport. Maintenance costs are particularly relevant for reusable packaging that needs to be repaired or inspected regularly. What many companies overlook are the indirect costs. Think of the time your staff spend on packing and unpacking, the storage space required and the administrative burden. These ‘hidden’ costs can account for a significant portion of the total TCO.

Does total cost of ownership always include disposal costs?

No, total cost of ownership analyses do not always include disposal costs, although they really should. Many traditional TCO calculations stop at the operational phase and ignore what happens when the packaging reaches the end of its life. This is a missed opportunity and can lead to poor decisions. Some packaging materials appear cheap to purchase but incur high disposal costs. Other materials cost more upfront but can be recycled or even have a residual value. The reason disposal costs are often omitted lies in the complexity of predicting future disposal costs and regulations. However, with the increasing focus on sustainability and the principles of the circular economy, it is becoming increasingly important to include these costs in your calculations.

What are end-of-life and disposal costs in packaging?

End-of-life and disposal costs are all costs incurred when your packaging can no longer be used. This includes disposal costs, recycling costs, any fines for non-compliance with environmental regulations, and the administrative costs of waste processing. For industrial packaging, these costs can mount up considerably. Take, for example, foam interiors often used for sensitive equipment. These often need to be processed as hazardous waste, which is more expensive than ordinary commercial waste. Wooden pallets, on the other hand, can often be recycled, but do require transport to a recycling facility. Compliance costs are also part of end-of-life expenditure. In many sectors, such as medical and defence, strict regulations apply to how packaging materials must be disposed of. Failure to comply with these rules can result in fines that are many times higher than the original packaging costs.

How do you calculate disposal costs for industrial packaging?

You calculate disposal costs by listing all disposal-related expenses and spreading these costs over the expected lifespan of your packaging. Start by identifying the type of waste stream and the associated rates per kilogram or cubic metre. Start by categorising your packaging materials. For example, standard cardboard costs around €50–80 per tonne to dispose of, whilst contaminated packaging from the chemical industry can cost up to €500 per tonne or more. Wood usually falls somewhere in between, at around €100–150 per tonne. Don’t forget to factor future regulations into your calculations. Disposal rates often rise, and new environmental regulations can suddenly double your disposal costs. A good rule of thumb is to factor in an annual increase of 3–5% for disposal costs.

Why do companies often overlook end-of-life costs?

Companies often overlook end-of-life costs because these expenses only become apparent years later and are usually managed by a different department from the one making the packaging decisions. The procurement department only sees the purchase price, whilst facilities management later receives the disposal bill. Another problem is that end-of-life costs are difficult to predict. Regulations change, disposal rates fluctuate and new recycling technologies can suddenly reduce costs drastically. This uncertainty means that many companies omit these costs entirely from their calculations. The time horizon also plays a role. Many companies focus on short-term results and quarterly targets. Costs that only become apparent in three to five years’ time are given lower priority than immediate savings on the purchase price.

What’s the difference between TCO with and without disposal costs?

The difference between TCO with and without disposal costs can be significant and often leads to conflicting conclusions about which packaging solution is the most cost-effective. A complete TCO, including end-of-life costs, provides a much more realistic picture of the actual costs. Take, for example, the choice between disposable cardboard boxes and reusable plastic containers. Without disposal costs, the cardboard boxes appear much cheaper: €2 each versus €25 for the plastic version. But if you factor in disposal costs (€0.50 per cardboard box) and consider that the plastic container can be used 50 times, the picture changes. In high-tech and medical applications, the difference can be even greater. Specialised foam packaging can cost €200–500 per cubic metre to dispose of, especially if it is contaminated. This can increase the TCO by 15–30% compared to calculations that only consider purchase and use. For companies wishing to optimise their packaging management, it is therefore important to always consider the full lifecycle. At Faes, we help our clients carry out these comprehensive TCO analyses, so that you can make truly cost-effective decisions that are also sustainable in the long term.

Frequently Asked Questions

How often should we review our packaging TCO calculations to account for changing disposal costs?

We recommend reviewing your packaging TCO calculations annually, or whenever significant regulatory changes occur in your industry. Disposal costs and environmental regulations evolve rapidly, and what seemed cost-effective two years ago might now be the most expensive option. Set up an annual review process that includes current disposal rates, upcoming legislation, and new recycling technologies that could impact your end-of-life costs.

What’s the best way to get accurate disposal cost estimates for packaging materials we’ve never used before?

Contact multiple waste management companies for quotes based on your specific packaging materials and volumes. Do not rely on generic industry averages – disposal costs vary significantly by location, contamination level, and waste stream type. Also consult with your packaging supplier, as they often have experience with disposal costs for their materials and can connect you with appropriate waste handlers.

How do we handle TCO calculations when disposal regulations might change during the packaging’s lifecycle?

Build flexibility into your TCO model by creating scenario analyses with different regulatory assumptions. Include a ‘worst-case’ scenario with stricter disposal requirements and higher costs, typically 20–40% above current rates. This approach helps you make decisions that remain viable even if regulations tighten, and identifies packaging solutions that are resilient to regulatory changes.

Can disposal costs ever be negative, and how does this affect TCO calculations?

Yes, disposal costs can be negative when packaging materials have resale value or generate revenue through recycling programmes. High-quality metals, certain plastics, and clean wooden pallets often have positive end-of-life value. When calculating TCO, treat these as negative disposal costs or revenue streams, which can significantly improve the total cost picture for materials that initially seem more expensive.

What are the most common mistakes companies make when trying to include disposal costs in their TCO analysis?

The biggest mistake is using generic disposal rates instead of obtaining specific quotes for your materials and contamination levels. Companies also often forget to account for transport costs to disposal facilities, administrative overheads, and potential compliance penalties. Another common error is failing to consider volume discounts – disposal costs per unit often decrease significantly with larger volumes.

How do we convince different departments to collaborate on TCO analysis when disposal costs affect facilities management but purchasing makes the decisions?

Create a cross-functional team comprising representatives from purchasing, facilities, finance, and operations to jointly develop TCO criteria and decision-making processes. Establish shared KPIs that include total lifecycle costs, not just purchase price, and ensure disposal cost data feeds back into purchasing decisions. Consider implementing a chargeback system where disposal costs are allocated to the department that made the original packaging choice.